Nasdaq closes at 2-year low on Monday, hurt by slumping chip stocks

In light of Q3 earnings that are expected to show their slowest growth of this year and the weakest since 2020, UBS has identified both stocks with upside potential and those with downside risk.

"Margin gains in '23 [are] at odds with fading sales growth expectations," UBS equity strategist Keith Parker said in a note Monday.

Stocks with earnings upside include Tempur Sealy Intl., Kellogg, Danaher, Corteva and Sonoco Products.

Those companies with downside risk were named by UBS as Ross Stores, Weber, RealReal, Simply Good Foods and DocuSign.

— Tanaya Macheel

The Dow is trying to squeak out a positive session on Monday, but struggles for some growth-focused ETFs show that investors are not exactly piling back into risk.

Cathie Wood's Flagship Ark Innovation ETF is down 2.7% on the day, and the Invesco Solar ETF has shed 1%.

Two smaller thematic funds that are struggling are the iShares Cybersecurity and Tech ETF and the Roundhill Sports Betting and Gaming ETF, which are both down more than 2%.

— Jesse Pound

Stocks traded lower in the final hour of trading Monday after whiplashing during the day. The S&P 500 shed 0.71%, off lows of the day where it came within four points of its 52-week low. The Dow Jones Industrial Average shed 52 points, while the Nasdaq slipped 0.86%.

Earlier in the day, the Nasdaq hit its lowest level in two years.

—Carmen Reinicke

The S&P 500 came within four points of its 52-week low during Monday's volatile trading session, weighed down by falling semiconductor and technology stocks.

At lows of the day, the S&P 500 fell to 3,588.10. The indexes current 52-week low is the 3,584.13 level it hit on Sept. 30.

—Carmen Reinicke

Markets are gearing up for a major week of inflation data that could move bonds and stocks for the rest of the week after a low-volume Monday.

On Tuesday, the New York Fed survey of consumer expectations, including what they think of inflation, comes out. On Wednesday and Thursday, the producer and consumer price indexes will be released. Then, on Friday, Consumer sentiment is released.

"Bond markets are closed today but I have a feeling they're going to be busy digesting all of the inflation data that's coming out," said Shawn Cruz, Head Trading Strategist at TD Ameritrade. He added that inflation data has driven much of the market's choppiness lately, as it will depend how aggressive the Federal Reserve is with continued rate hikes going forward.

-- Carmen Reinicke

Fed Vice Chair Lael Brainard said at an event in Chicago that the central bank was seeing "tentative" signs of a cooling labor market and acknowledged that "lags in transmission" mean that the Fed's recent rate hikes will have a growing impact on non-housing sectors of the economy in the coming months.

Brainard also said the Fed was aware of the impact of hikes on the global economy, and not just in the U.S.

"The combined effect of concurrent global tightening is larger than the sum of its parts. The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. We are attentive to the risk of further adverse shocks—for instance, from Russia's war against Ukraine, the pandemic, or China's zero-COVID policies," Brainard said.

Brainard did not reveal her preference for the size of rate hikes going forward nor suggest that the Fed pause its tightening process, but stocks appeared to rebound slightly after the comments were released.

Brainard also pointed to high profit margins in some sectors, such as auto dealerships, as proof that rate hikes have not yet had their desired impact.

"Monetary policy will be restrictive for some time to ensure that inflation moves back to target over time. It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down," she said.

—Jesse Pound

Pharmaceutical companies Immunic and scPharmaceuticals were moving with unusually heavy volumes during day trading Monday.

Immunic shares shot up 49.5% following news of a securities purchase agreement with a 10% upside to Friday's closing price. The company focuses on the treatment of chronic inflammatory and autoimmune diseases.

scPharmaceuticals plunged 21.7% after the company announced it entered into a $100 million debt financing agreement with Oaktree Capital Management. The company also announced Monday it received Food and Drug Administration approval for FUROSCIX, which treats congestion due to fluid overload in adults with certain types of chronic heart failiure.

— Alex Harring

The Bank of England's efforts to exit its ultra-easy monetary policy reverberated through bond markets Monday, sending UK yields higher and leading traders to up their best on rates in the U.S.

An announcement from the BofE indicated that the central bank will implement measures to achieve an "orderly end" to its scheduled termination Friday of its quantitative easing program. The bank said it will launch multiple liquidity facilities to make sure markets continue to function properly amid the QE exit.

Yields on 10-year gilts jumped nearly 23 basis points to 4.455% by 1 p.m. New York Time. Other areas across the yield curve moved even higher. German 10-year bund yields jumped in kind, moving to 2.34% after earlier hitting the highest levels since November 2011.

At the same time, the fed futures contracts priced in higher rates in the U.S. The April 2023 contract implied a rate of 4.715%, well above the current range of 3%-3.25% and the Fed's unofficial forecast terminal rate of 4.6%.

The BoE's move was seen parts of the market as a gamble to restore its credibility following weeks of volatility.

"Whether the government succeeds or fails in shoring up fiscal credibility will define the trade-off facing the Bank," Krishna Guha, head of central bank strategy for Evercore ISI, said in a note. "If it fails, the market rate curve will move up further, and the Bank will face a near-impossible trade-off between validating these expectations and crushing the economy and housing market, or trying to deliver less than the market expects, and crashing sterling and risking inflation expectations."

The U.S. bond market was closed Monday for the Columbus Day holiday.

—Jeff Cox

 Instead of a light at the end of the tunnel, markets are barreling towards an earnings recession train that the Federal Reserve can't stop, Morgan Stanley chief equity strategist Michael Wilson wrote in a Friday note.

"Fire and Ice remains in gear with M2 growth now into the danger zone where financial/economic stress occurs," Wilson wrote, adding "while the Fed can fix this by restarting QE, it cannot stop the oncoming earnings recession."

Morgan Stanley remains bearish and sellers of rallies until the price is right, and sees many macro risks including weakness in Europe, dollar strength, higher rates, China's reopening in focus in corporate commentary in earnings.

The firm also sees that bear market conditions have not been met, so it's too soon to call the end of the cycle.

—Carmen Reinicke

JPMorgan CEO Jamie Dimon said Monday that the U.S. economy is likely to fall into recession during the spring or summer of 2023.

Dimon told CNBC's Julianna Tatelbaum that persistent inflation, rising interest rates and the ongoing war in Ukraine were all factors hurting economies of Europe and the U.S.

"These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they're likely to put the U.S. in some kind of recession six to nine months from now," Dimon said.

Dimon said that there is uncertainty about how bad a recession will be and is not predicting just a mild dip that some bullish investors are looking for.

"It can go from very mild to quite hard and a lot will be reliant on what happens with this war. So, I think to guess is hard, be prepared," he said.

— Jesse Pound

These companies are making headlines midday:

• Ford Motor, General Motors — Shares of Ford and GM fell 7% and 5% respectively, after UBS downgraded both stocks, saying the auto industry is moving toward vehicle oversupply following three years of unprecedented pricing power.
• Casino stocks — Shares of hotel and casino companies were the top decliners in the S&P 500, with Wynn Resorts down 11.6% and Las Vegas Sands losing 8.5%. MGM Resorts dipped by 3.5%. The moves came as Chinese cities reimposed Covid lockdowns thanks to a spike in daily cases over a weeklong holiday.
• Nvidia — The chip stock fell more than 4% to hit a 52-week low after the Biden administration published a sweeping set of export controls, including a plan to cut China off from certain semiconductor chips made with U.S. equipment.

Check out more midday movers here.

— Tanaya Macheel

Stocks slumped Monday and were in the red at midday trading, though off the lows of the day.

The Nasdaq Composite fell more than 1% to a new low Monday, but regained some of those losses to trade down about 0.94% at noon in New York. The S&P 500 shed 0.56% and the Dow Jones Industrial Average fell nearly 48 points, or 0.16%.

-- Carmen Reinicke

In the upcoming earnings season, the kind of guidance that companies give about what they expect in the future is more important than what they report for the third quarter, according to Bank of America equity strategist Savita Subramanian.

"S&P 500 3Q EPS estimates have fallen 7% since July, more than the typical 4% cut into earnings," Subramanian wrote in Sunday note. "Nine of the 11 sectors saw downward revisions to earnings, where Energy was the only sector with meaningful upward revisions."

While overall economic data have help up in the third quarter, many indicators that Bank of America tracks suggest that a miss is likely for earnings.

"Our 3Q forecast of $50 (+2% YoY) is 1% below consensus' $55.58 (+3% YoY)," Subramanian wrote. "But guidance is likely to matter most, and we see substantial downside risk to 4Q and 2023."

In addition, the bank's corporate misery is high given increased margin pressure, hits to demand and bloated inventories.

They'll be watching for signs of further economic weakness going forward.

"Recession is top of mind for investors, and consumer weakness was evident during 2Q earnings," wrote Subramanian. "Mentions of weak demand and layoffs will be closely watched. We calculate FX was a 3ppt hit to 3Q sales growth from translation, the biggest headwind since 2015.

—Carmen Reinicke

The Nasdaq Composite and Nasdaq 100 both fell to their lowest levels since September 2020 on Monday. Each index is now down more than 32% for the year.

Semiconductor stocks are one of the main sources of weakness on Monday, with Lam Research down more than 8% and Marvell off by 7%.

Chinese internet stock Pinduoduo is the worst performer in the Nasdaq 100, falling more than 11%.

— Jesse Pound, Gina Francolla

Famed investor Paul Tudor Jones believes the U.S. economy could already be in a recession amid the Fed's aggressive tightening cycle.

The founder and chief investment officer of Tudor Investment said there is a specific recession playbook to follow for investors navigating the treacherous waters, and history shows that risk assets have more room to fall before hitting a bottom.

"Most recessions last about 300 days from the commencement of it," Jones said. "The stock market is down, say, 10%. The first thing that will happen is short rates will stop going up and start going down before the stock market actually bottoms."

— Yun Li

After remote school and work during the Covid pandemic created a surge in demand for iPads, Apple is likely to see year over year declines in iPad shipments for 2022 and 2023, according to Bank of America.

Analyst Wamsi Mohan said in a note to clients on Monday that iPad sales could fall to pre-pandemic levels next year.

"Although the device continues to attract a high proportion of new users (~50% of purchasers in any qtr. even pre-pandemic were new to the device), replacement rates remain muted. We see this as a function of the category being in structural decline," the note said.

On the bright side, Apple could see a rebound in 2024 as iPads purchased early in the pandemic are due for an upgrade, Mohan said.

Shares of Apple were down 0.7% in morning trading. Bank of America has a neutral rating on the tech stock.

— Jesse Pound

A selloff in semiconductor stocks brought two key industry exchange-traded funds to their lowest levels in 52 weeks on Monday.

The slump comes amid a shift in U.S. policy that limits companies from exporting to China.

Both the iShares Semiconductor ETF and the Vaneck Semiconductor ETF fell to their lowest levels since November 2020. Shares of LAM Research, Marvell, KLA and AMAT all down over -4% so far today, dragging the ETFs lower.

-- Carmen Reinicke, Gina Francolla

December wheat futures rallied 4.6% Monday morning to a high of $9.245 a bushel (60 pounds of wheat) after Russian missile attacks struck more than 10 cities in Ukraine overnight, raising concern that exports will be hurt.

The Teucrium Wheat Fund is ahead 3.3% premarket while the Invesco DB Agriculture Fund is higher by 1.3%.

December gold and silver contracts were trading at one-week lows, with the VanEck Gold Miners ETF Gold ETF and Global X Silver Miners ETF down between 1.3% and 1.8% in early trading. First Majestic Silver, Harmony Gold and Hecla Mining fell about 2%.

The dollar index is on pace for a fourth straight advance, with the euro falling as low as 0.968 against the dollar.

— Scott Schnipper, Gina Francolla

The strength of the U.S. dollar is likely to be an important point coming up in earnings, according to Chris Larkin, managing director of trading at E*Trade from Morgan Stanley.

"The last earnings season of the year is kicking off following a week where—in typical 2022 trading fashion—there was no shortage of eyebrow-raising price moves," Larkin wrote in a Monday note. "Despite pulling back to a two-week low last Tuesday, the US dollar index bounced to end last week up more than 17% for the year, and not too far below its 20-year high."

"We may hear more in the coming weeks on the pressures an exceptionally strong dollar can have on US exports and thus, earnings of US companies, but dollar strength could also play a role in getting the Fed to "back off" from its tightening policy," he added. "Though even if continued dollar strength eventually contributes to the Fed switching from raising rates to cutting them, the timing of such a pivot remains uncertain, and might not change the downward trajectory of corporate earnings."

—Carmen Reinicke

CNBC Pro subscribers can get the lowdown on the biggest calls of the day coming out of Wall Street.

Calls from Monday and over the weekend that investors are taking note of include:

• Goldman: Etsy's marketplace structure makes it unique shielded from supply and demand changes, making it a buy.
• Guggenheim: Merck earns back its buy rating through growing key product sales and positive movement on trials.
• Goldman: Kraft Heinz was upgraded to buy, while Procter & Gamble downgraded to neutral, as retail companies feel impacts of foreign exchange unevenly.
• UBS: Ford and General Motors were both downgraded as cars become less attractive to squeezed consumers.

Read the highlights here.

— Alex Harring

Used vehicle prices, a key driver of inflation over the past year or so, could be showing signs of letting up.

Prices in September dropped 0.1% from a year ago, according to the Manheim Used Vehicle Value Index. That's the first negative 12-month reading for the index since May 2020 and indication that a sector that had been heavily impacted by pandemic-related spending could be seeing some relief.

In the summer of 2021, for instance, used vehicle prices had been rising at a pace of more than 10% a month. A dearth of new vehicles had pushed buyers into the used market, sending prices skyrocketing.

However, in recent months, prices have receded. The Bureau of Labor Statistics, for instance, reported a 0.1% month-over-month decline in August.

Markets will get a look at fresh inflation figures Thursday when the BLS releases September's consumer price index. Economists surveyed by Dow Jones expect headline CPI to show a 0.3% monthly increase and an 8.1% annual gain.

—Jeff Cox

The Federal Reserve is probably not anywhere near a pivot from raising interest rates to cutting them, according to Mohamed El-Erian, chief economic adviser of Allianz.

"Can they stop, can they pivot? No they cannot," El-Erian said on CNBC's Squawk Box Monday morning. "They cannot because the data does not give them enough of a green light, but importantly their credibility has been hit very hard."

He added that because of this, it's likely that the Fed will overtighten and lead to a U.S. recession.

"They've gotten themselves into this hole and unfortunately they don't know how to get out of this hole," he said. "There's no ladder out of this hole."

—Carmen Reinicke

Monday could see light volume with many Wall Street traders off for Columbus Day. The U.S. stock market is open Monday, but the bond market is closed.

On last year's Columbus Day, the SPDR S&P 500 Trust traded about 65 million times. That is lower than any day in September or October of this year.

While lower volume can sometimes make for a sleepy trading day, it could also contribute to outsized stock moves, as the market could be more susceptible to news events that drive knee-jerk reactions.

— Jesse Pound

Rivian Automotive shares dropped nearly 10% in premarket trading after the EV startup said it will recall nearly all of its vehicles due to a possible issue of a loose fastener that could make a driver lose steering control.

In May, Rivian recalled electric pickup trucks in the United States because airbags may not deactivate when a child is in the front passenger seat. The stock has lost 67% this year as rising rates hit growth names particularly hard.

— Yun Li

Multiple large explosions hit Ukraine's capital Kyiv on Monday, killing and injuring people, the city's emergency services said. The attacks come just days after a blast destroyed part of Russia's Kerch Bridge, the only bridge that links Russia to the Crimean peninsula. Moscow illegally annexed Crimea in 2014.

Russian President Vladimir Putin called the blast at the Kerch Bridge a "terrorist attack." Kyiv has not directly taken responsibility for the explosion.

The strikes are the latest escalation of conflict between Russia and Ukraine.

Read more on CNBC's live blog of the situation.

—Carmen Reinicke

The Bank of England is set to introduce further liquidity measures as it seeks to ensure financial stability in the U.K.

It comes after the central bank on Sep. 28 announced a two-week emergency two-week purchase program for long-dated U.K. government bonds. It was designed to protect liability driven investment (LDI) funds from imminent collapse.

Now, the BOE has announced further measures to ensure an "orderly end" to its purchase scheme on Oct. 14, including increasing the size of its daily auctions to allow headroom for gilt purchases ahead of Friday's deadline.

Read more here.

— Elliot Smith

European markets retreated on Monday morning, tracking negative global sentiment as investors bet that last week's U.S. jobs data will keep the Federal Reserve on an aggressive path of interest rate hikes.

The pan-European Stoxx 600 fell 0.4% in early trade, with utilities shedding 1.2% to lead losses as most sectors and major bourses slid into the red.

- Elliot Smith

As Europe struggles with soaring electricity and gas bills, Goldman Sachs says global companies focussing on energy efficiency are set to outperform.

"We think Energy Efficiency companies can outperform over the short term, with the focus on energy efficiency to tackle the current energy crisis that followed the Russian invasion of Ukraine," the analysts wrote in a note on Oct. 3.

"[And] over the long term, with the focus on energy efficiency to tackle the climate change and reach the ambitious 'net zero' targets."

CNBC Pro subscribers can read more here.

— Weizhen Tan

The Caixin services purchasing managers' index came in at 49.3 in September, according to a report published Saturday, a steep drop from 55 in August.

The 50-point mark separates growth from contraction. PMI readings compare activity from month to month.

The nation's Covid curbs caused services activity in China to contract in September for the first time since May, the report said.

"Companies that reported reduced activity frequently commented that the pandemic and subsequent measures to contain the virus had restricted operations and weighed on demand in September," the press release by Caixin said.

— Abigail Ng

Allianz Chief Economic Adviser Mohamed El-Erian predicts core inflation will continue rising while headline inflation comes down to about 8%.

He told CBS' "Face The Nation" on Sunday that inflation core inflation will eventually come down. But he expects new Consumer Price Index data coming Thursday to show it rose again month over month.

Core inflation previously rose 0.6% from July to August – the most recent data before what is coming next week – and was up 6.3% from a year ago.

"The question is, does it come down with a slowdown in the economy or a major recession?" he said.

— Alex Harring, Ashley Capoot

Market observers will be watching for key data and information coming in the coming week.

Four of the world's largest banks, as well as consumer interest brands like PepsiCo and Domino's, will report earnings for a week many call the start to the new earnings season.

They will also watch for Consumer Price Index data Thursday morning as concerns over inflation continue to impact the political landscape and economic policy.

New data from the University of Michigan's Consumer Sentiment Index will drop Friday morning. This index gauges consumer feelings about issues such as the health of the business world and their finances and is considered a key indicator of how average Americans feel about the economy.

CNBC Pro subscribers can see more to watch for here.

— Alex Harring, Jesse Pound

Stock futures were down at the start of after-hours trading Sunday night.

Futures connected to the Dow Jones Industrial Average shed 0.3% to 29,225 points.

Both the S&P 500 and Nasdaq 100 saw futures down 0.4% to 3,638 points and 11,056.75 points, respectively.

— Alex Harring